From: The Business Ledger [1]

‘Clash of Wills’ as AT&T Makes $4.6 Billion Cable Move

April 4, 2007

Promising increased competition and consumer advocacy, AT&T is investing $4.6 billion in a national move into the cable industry, yet many area municipalities have accused the telecommunications giant of pursuing anything but fair competition.

Project Lightspeed is a new video product offered by AT&T that is designed to compete with cable. The corporation’s nationwide campaign has begun to raise eyes in Illinois as House Bill 1500 is currently up for review. Under the bill, a statewide competition correction would be made, enabling AT&T to compete against cable franchises.

However, the bill has irked many municipalities because as it is written, it would remove much of the standard municipal control that currently exists in the cable franchise business.

“The current franchising system doesn’t work,” said Paul La Schiazza, president of AT&T Illinois. “It is too time-consuming and cumbersome. We have negotiated for 18 months with 100 communities and we only have six agreements. We can’t break into the current system.”

However, while AT&T blames the system, many municipalities state that it was not the system itself that caused negotiations to stall, but rather AT&T’s insistence in not considering itself bound by the rules of cable franchise agreements.

“They say that they are not a ‘cable’ franchise,” said Terry Miller, senior assistant attorney for the city of Naperville. “We have not been able to agree with them because they want to follow a different set of rules.”

The process began more than a year ago when AT&T began to negotiate with Chicago-area communities about the possibility of adding another video service to compete with incumbent cable franchises. Most municipalities were willing to hear them out, citing possible increased competition that would be good for consumers.

However, as many discussions began to break down due to a number of disagreements, some municipalities passed moratoriums against AT&T’s right to build in their communities, which in turn prompted several lawsuits against these towns brought on by the corporate giant.

Naperville’s Miller said that even though his municipality was not a part of these early dealings, it willingly stepped in as a “peacemaker” and attempted to reach an agreement with AT&T that would act as a blueprint for surrounding communities.

“Naperville already has four cable service providers, but we would welcome a fifth,” said Miller. “We want to give our residents as many choices as we can.”

However, during the negotiations, city officials found too many discrepancies that they could not come to terms with, primarily that AT&T would not guarantee universal coverage of its services, said Terry, placing it on a scale different from already competing entities in the municipality.

“You can’t cherry pick customers,” said Miller. “How do you compete fairly when someone who says they will service everybody goes up against someone who doesn’t have to?

“It is not a small issue if you say that you aren’t going to service everyone. And if we were going to be a blueprint for other areas we could not let that pass with a clear conscience.”

AT&T’s La Schiazza said the company did not plan to build out 100 percent with the launch of the product, but that instead, like other new products, it would be rolled out slowly and then increased as the market demanded.

“Our goal is to reach 50 percent of our customer base within three years,” said La Schiazza. “We have made a commitment to build out. We need to get to a 30 percent market penetration rate before this operation is profitable.”

La Schiazza argues that cable companies are not required to be 100 percent deployed with Internet and phone services to their customers and that they can provide these services under one franchise agreement alone creates an unfair playing field.

“It’s okay for a cable company to have one franchise agreement, yet still provide phone and Internet services,” said La Schiazza. “Yet telephone requires two franchises to compete. That doesn’t sound like a level playing field.”

Comcast released a statement saying that “If AT&T wanted to provide video to all customers today, there is nothing preventing them from doing so. Instead, they are seeking special rules that will apply only to them since they don’t want to be held accountable for problems with their proposed cable service.”

Another problem that arose during negotiations with numerous municipalities was public right-of-way laws. AT&T’s new service would require that a cable box be established for every 300 users. The boxes are 63 inches high, 48 wide, and 25 deep and must be stationed on concrete.

Municipalities have become frustrated as to the exact location of these boxes as well as over just how much input they will have in the process.

AT&T’s La Schiazza said that the boxes would be built in cooperation with the municipalities and that proper permits would be acquired to initiate the process. However, Naperville’s Terry pointed out that there is no wording in the current House 1500 Bill proposal that would give municipalities the right to deny these permits.

“The current bill says that we can control permits, but it does not state that we can tell AT&T ‘no,’” said Miller. “If they want to put one of their boxes in the middle of someone’s lawn, there is no way for us to say ‘no.’”

In response to this, communities such as Itasca and Naperville began to put fake boxes in residential areas that matched the dimensions of the proposed AT&T boxes and painted them florescent yellow or pink, with tag lanes such as “This big ugly box brought to you by AT&T.”

The safety of the boxes has also been called into question by Naperville, after a recent incident in a Houston neighborhood resulted in the explosion of an AT&T box, damaging a nearby house.

While the company has not provided Naperville a report on the incident as requested, La Schiazza said that the boxes and the technology are “safe.”

River Grove is one of the six Illinois communities to sign on with AT&T. The others are Wayne, North Chicago, Wauconda, Bellwood and Mundelein. Village officials in River Grove cited a positive relationship with AT&T for their willingness to sign on.

Raymond Bernero, a River Grove trustee and the village’s finance committee chair, said that he approached AT&T about Project Lightspeed after reading about it in the Chicago Tribune. Although he had a positive relationship with the company through its involvement in the village’s chamber of commerce and its years in the business community, AT&T representatives had never mentioned the project to him.

“They told me that it was not something they were pushing on communities and that if some were interested, they were welcome to inquire,” said Bernero. “I thought we should be responsible to our citizens and weigh the option.”

As soon as word got out that village officials were going to speak with AT&T, the incumbent provider, Comcast, emerged, said Bernero.

“I have been a representative in this village for 10 years and I have never seen anyone from Comcast,” said Bernero. “This was the first time I was aware of our representatives’ names.”

The village held a town hall meeting where each side was allowed to present its case. Complaints made by other municipalities regarding House Bill 1500 were brought to Bernero’s attention during the town hall meeting, but they were not enough to sway the decision of village officials.

Bernero said that the prospect of 12 cable boxes dotting the River Grove landscape were not enough to deter the city and that the charges of “red lining” or cherry picking customers was not much of an issue either.

“If AT&T only provides 60 percent of our residents with the service and then the other 40 percent come banging on our door demanding it, I’ve got to believe that AT&T is going to find a way to deliver it,” he said.

He said that the process was somewhat exhausting in the end, but fascinating as well.

“I felt like I was on a jury in this situation and someone wasn’t telling the truth,” said Bernero. “We decided to go with AT&T because they are active within our community, as opposed to Comcast who was virtually non-existent to this point.”

Every municipality approached for this article said that it would welcome more competition in the marketplace. AT&T touts competition as the driving force behind this new service. The Federal Communications Committee released a recent study that states that communities with more than one cable provider see 14-51 percent lower rates than communities with just one.

Itasca is one of the municipalities that placed a moratorium on AT&T and is currently being sued by the telecommunications giant. However, village officials said that they are willing to sit down with AT&T again as long as some aspects of the previous negotiations change.

“What is unfair in this is that we are being painted as anti-business,” said David C. Williams, village administrator for Itasca. “We are not opposed to competition. We wish there were four or five companies that would like to sign franchise agreements. That would give our residents choice and bring down cost.”

Williams said that AT&T proposed fees that were similar to franchise agreements, allowing for 5 percent of revenues to go to the municipality, but that the company was unwilling to put it in writing.

Cable organizations say that the promise of increased competition with AT&T in the market is not true and that there is already plenty of competition.

“Satellite accounts for one-third of the market,” said Gary Mack, spokesman for the Illinois Cable Television and Communication Association, which represents 20 cable providers throughout Illinois. “This won’t create more competition. They are just trying to change the rules. And the municipalities are the ones that really lose out with the way House Bill 1500 stands now.”

Currently the bill has 27 co-sponsors in the Illinois House. The Metropolitan Mayors Caucus has requested that all its members oppose the bill as it stands.

“It really seems like a battle of wills,” said River Grove’s Bernero. “The mayors want control of their turfs and AT&T is a business, not a charity.”